We can see that there are three words in the acronym ERP. They are enterprise, resource and planning. Let’s see what are their basic meanings:
Enterprise : It is a company, or a business.
Resource : It is the resources that build the enterprise. It includes physical resource, human resource, intellectual resource, time resource, financial resource and intangible resource.
Planning : It is to set up a course of actions where these resources can be utilized at an optimized level to output maximum efficiency of the business or enterprise.
ERP is a computer software system where all the components (resources) of a business can be integrated, automate and collectively monitored, analysed and managed.
A Brief History
The origin of the term ERP goes back to the time of early manufacturing industries. Back then it was initially referred to as MRP (Material Requirements Planning). MRP system were basically used to track, manage and control the inventory. As more and more manufacturer started to use and develop their own MRP as well, it becomes more sophisticated which led to evolve MRP II. It has more capability which can be used to handle financial like, purchasing, bill of materials generation. Moreover it has other advance features like scheduling and process management for a manufacturing industry. Later on as computing technology increases, these system became more sophisticate that it can be used beyond manufacturing business like financial management, human resource etc.. Then Gartner Group coined the acronym ERP which is still used now.
ERP vs MIS
Most of us sometimes confuse these two acronyms:
– ERP (Enterprise Resource Planning) and
– MIS (Management Information System).
ERP: It is an operational system that automates and integrates core business processes.
MIS: It is an information system that facilitates data-driven decision-making. Its primary focus is collection of data from various sources, analyse and provide information to managers to make decision of the business.
Why do we need ERP?
ERP plays a major role in digital transformation of a business. The main advantages of use ERP are:
Manual work reduction: ERP reduces repetitive tasks by making it automate. E.g. employee salary can be process automatically by collecting resources like attendance from the attendance system of ERP, employee grade from HR system of ERP etc.
Reduce operational cost: ERPs greatly cut down the operational cost of a company. E.g. A manufacturing company can track its product inventory easily and planned its production in time.
Scalability: ERPs can be expanded as company grows. E.g. if a company want to open its business to a new area/state/country, it just need to add a few parameters specific to the area/state/country, the rest will be take care by ERP.
Flexibility: Whenever there are any changes in the company workforce, ERPs can be configured manually or automatically accordingly.
Centralized reporting: Reporting is the main component of an ERP system. ERP can generate reports as per the available data in it. Any layman user can generate on a single click. The reports can be either in visualization or tabular.
Data security: ERP users are given limited access according to there roles in the company. Some employee may only view specific data and some can even delete data. With the use of enhanced encryption technology data security can be increased.
Who needs an ERP?
Well, every business needs an ERP. Efficient using of ERP helps to reduce all the manual repetitive tasks, calculations, saves time, share data efficiently among resources, hence, reduce overall operational cost.
Given below point will give some idea about who should use an ERP:
Using of multiple software: If your company/firm is running using multiple software for different business segments, then it would be hard to integrate them. E.g. To process salary of an employee, data from attendance system need to be imported. If Salary processing and attendance are within the same software systems, then the salary processing will work seamlessly.
Inefficient with spreadsheet: We all know most of the project management, workforce management etc. uses spreadsheet as a quick and handy tool. However, problem arises when there is need to manage multiple spreadsheets, data becomes huge, increase of complexity in the business process. These problems can be solved by using an ERP solution.
Lack of reporting: A company progresses by analysing reports. One of the main problems of unable to generate report is because of decentralized data source. In an ERP system all the data from subsystems will be collected automatically and act as a single data source. With this single data source, it will be easy to generate required reports.
Tracking progress from multiple location: To monitor a progress from different location, all the data need to be sync and centralized. E.g. in a supply chain business, all the stages starting from raw material procurement to product delivery need to be tracked.
Cons of ERP
Main drawback of implementing ERP is high investment cost and time. Implementing an ERP system is expensive, including software licenses, customization costs, consulting fees, and hardware upgrades, 3rd party solution subscription etc.
Examples
Somes examples of ERPs used in industries are:
– SAP ERP
– Microsoft Dynamics 365
– Oracle NetSuite